Snap Group disappointed with its second quarter results

Snap tries to regain control. The parent company of the Snapchat application largely disappointed the market with its quarterly results on Thursday. Its title lost more than 26% during electronic trading after the close of trading.

Snapchat had 347 million daily active users at the end of June, up 18% from a year ago, according to a statement. It continues to attract more people in all regions of the world, including North America and Europe, where some entertainment platforms are nevertheless facing the beginning of saturation.

The Californian group is also doing well in terms of income, with a turnover of 1.1 billion dollars (1.06 billion Swiss francs, +13% over one year). But its net losses widened to 422 million dollars (408 million Swiss francs), compared to 152 million (147 million Swiss francs) last year.

Read also: In 2020, TikTok overtook Facebook as the most downloaded app

Derek Andersen, Snap’s chief financial officer, noted a “pretty steady” drop in demand over the past year, consistent with Apple’s changes, and “intensified” competition, “both from TikTok than other bigger, more sophisticated competitors” – like Google and Meta (Facebook, Instagram).

Recruitment rate slowed

“The steady growth of our community enhances our long-term opportunities, but our financial results in the second quarter do not reflect the extent of our ambition,” the executives said in a note to investors. “We are not satisfied with our performance, whatever the difficulties linked to the current economic environment,” they added, referring to galloping inflation, in particular.

“Snapchat has a lot of brands among its advertisers, and it’s ads for brands, especially experimental formats around augmented reality, that are the first to go when marketing budgets are cut,” noted Jasmine Enberg, from Insider Intelligence.

The group, which has never generated an annual net profit, had already made a profit warning in May, which had plunged its share price.

“We will substantially slow the pace of recruitment (…) and we will also take a close look at our operating expenses,” Derek Andersen said during a conference call with analysts. The company has nearly 6,500 employees, 38% more than a year ago.

Network co-founders Bobby Murphy and Evan Spiegel will stay on as CTOs and CEOs through the end of 2026 for a token $1 a year in compensation, plus stock awards if the price rises above $40 in the next 10 years. It was at $16.35 at the close on Thursday.

Bet around augmented reality

The bosses plan to focus on innovation and income diversification. At the end of June, the company launched Snapchat+, a paid version of the app, which gives access to additional features for four dollars per month, without removing advertising.

Snap also wants to develop better tools for measuring advertising effectiveness. Because the application also suffers from Apple’s regulatory change, which requires application publishers to obtain the consent of users before tracking them in their navigation to collect data for advertising targeting purposes.

“It’s a small player in the digital advertising market. It represents less than 1% of global revenues according to our forecasts for 2022, which makes it more sensitive to constraints than larger players like Meta”, underlined Jasmine Enberg.

Read also: Ten years after Google Glass, what is happening to virtual reality?

The company hopes that its bet around augmented reality will pay off in the long term. “On average, more than 250 million Snapchat users use augmented reality (our tools) every day,” says the note to investors.

This technology “is still a niche tool as an advertising or commercial tool, but it speaks to Snapchat’s user base, notes Jasmine Enberg. According to the analyst, as long as the platform continues to invest in tools and content, it will “attract and retain more available brain time, and ad revenue will follow.”

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